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Ag Secretary warns US markets to be patient if China cannot uphold trade agreements during virus outbreak

The US Agriculture Secretary has said that the US would have to be tolerant if the fast-spreading coronavirus impairs China's ability to increase purchases of American farm products under the countries' recently signed trade deal.

6 February 2020, at 9:55am

China, in the initial deal signed 15 January, promised to buy at least an additional $12.5 billion worth of US farm products in 2020 and at least $19.5 billion in 2021 over the 2017 level of $24 billion.

Commodity traders and agricultural economists have questioned whether Beijing will follow through on pledges in the deal to buy $36.5 billion of US agricultural goods in 2020, now that the new coronavirus is threatening China's economic growth.

"If they're really trying and it really just blows the economy out of the water, then we would have to be understanding of that," Perdue said, speaking to reporters at a cattle convention in Texas.

The United States wants China to live up to its pledges, Perdue said, but trade negotiators could not have anticipated the outbreak.

"There are force majeure type of things... that I think you have to be sensitive to," Perdue said.

The deal text contains a disaster clause, yet to be formally invoked by Beijing, to allow for delays: "In the event that a natural disaster or other unforeseeable event outside the control of the Parties delays a Party from timely complying with its obligations under this Agreement, the Parties shall consult with each other."

China's ability to meet its purchase target was in doubt even before coronavirus outbreak, because rival soybean supplier Brazil is harvesting a massive crop, and a deadly pig disease is reducing Chinese demand for soy used to feed livestock.

Hog and cattle futures on the Chicago Mercantile Exchange (CME) declined this week, with traders citing expectations that logistics problems caused by the outbreak would slow the pace of pork shipments to China at a time of plentiful US supplies.

"We have been relying on China the last few months, at least, to absorb an ever-increasing portion of the (pork) supply that we have. If that stops, even temporarily, it has a significant impact on the markets," said Altin Kalo, agricultural economist for New Hampshire-based Steiner Consulting.

Most-active CME April lean hog futures settled down 0.450 cent at 61.875 cents per pound, the contract's fifth lower close in the last six sessions.

Traders were waiting to see whether the US Department of Agriculture's weekly export sales report on Thursday would show a slowdown in weekly shipments of US pork to China.

Adding to bearish sentiment, the US pork cutout fell $2.83 on Wednesday afternoon, and cash hog prices in the closely watched Iowa and southern Minnesota market dropped by $3.33, according to the USDA.